INTRODUCTION

Cash is one of the current assets of a business. It is needed at all times to keep the
business going. Business concern should always keep sufficient cash for meeting its obligations.
Any shortage of cash will hamper the operations of a concern and excess of it, will be
unproductive. Cash is the most unproductive of all the assets. While fixed assets like machinery,
plant etc...And in hand will not add anything to the concern. It is in this context that cash
management has much importance.
For some persons, cash means only in the form of currency. For other persons, cash
means both cash in hand and at bank. Some even include near cash assets in it. They take
marketable securities too as part of cash. These are the securities which can easily be converted
into cash. These viewpoints reflect the degree of freedom of the persons using the cash. Whether
a persons wants to use it immediately or can wait for a time to use it depends upon the needs of
the concerned persons. Cash itself does not produce goods or services. It is used as a medium to
acquire other assets. It is the other assets which are used in manufacturing goods or providing
services. The idle cash can be deposited in bank to earn interest.
A business has to keep required cash for meeting various needs. The assets acquired by
cash again help the business in producing cash. The goods manufactured or services produced
are sold to acquire cash. A firm will have to maintain a critical level of cash. If at a time does not
have sufficient cash with it, it will have to borrow from the market for reaching the required
level. There remains a gap between cash inflows and outflows. Sometimes cash receipts are more
than the payments or it may be vice-versa at another time. A Financial manager tries to

synchronization the inflows and cash outflows. But this situation is seldom found in the real
world. Perfect synchronization of receipts and payments of cash is only ideal situation.
The project was undertaken at Forest Industries Travancore Limited,
Thaikattuara,Aluva. The company engaged in the current business of manufacturing and
marketing of wooden furniture, door, windows, and joineries since 1963. F.I.T became a
government company in 1960. F.I.T Ltd is the only public sector company in Kerala solely
engages in business of wood products. The aim of the study is to find EFFECTIVENESS OF
CASH MANAGEMENT OF FOREST INDUSTRIES (TRAVANCORE) LTD, ALUVA.

1.2 STATEMENT OF THE PROBLEM

The study entitled A study on effectiveness of cash management of Forest Industries
(Travancore) ltd, Aluva is an attempt to evaluate the cash management of Forest Industries
(Travancore) ltd, Aluva.

1.3. SIGNIFICANCE OF THE STUDY

The importance of Cash management in any industrial concern cannot be
overstressed. Under the present inflationary condition, management of Cash is perhaps more
important than even management of profit and this requires greatest attention and efforts of the
finance manager. It needs vigilant attention as each of its components require different types of
treatment and it throws constant attention on exercise of skill and judgment, awareness of
economic trend etc, due to urgency and complicacy the vital importance of Cash.The problem of
managing Cash has got the recognition of separate entity, so its study and management is of
major importance to both internal and external analyst to judge the current position of the

business concerns .The study is about effectiveness of cash management of Forest Industries
(Travancore).
The significance of this study lies in the fact that it helps to know the importance of
cash management system followed by the organization and suggest measures to overcome the
drawbacks of existing system. The study indicates the importance of cash management and it is
being done with the help of the cash flow statements (i.e. cash inflow and cash outflow).
The significance lies in the study that is mainly based on the Baumols model and the
hypothesis testing is being focused on the chi-square test and based upon the results obtained
from the test, indicates the acceptance or rejection of the test. Thus the significance of the study
is purely focused on the Baumols model.Hence, the present study entitled Effectiveness of
Cash Management has been taken up.

1.4 OBJECTIVES OF THE STUDY

Primary objective:
a) To study the existing system of cash management in Forest Industries (Travancore) ltd to
appraise the performance of the cash management system.
Secondary Objective:

To find out the liquidity position of the concern through ratio analysis.

To study the growth of Forest Industries (Travancore)ltd in terms of cash flow statement.

To make suggestion and recommendation to improve the cash position of Forest

Industries(Travancore) ltd.

1.5 SCOPE OF THE STUDY

The study on cash management system of Forest Industries (Travancore) ltd helps to
enlighten on the cash management system followed in F.I.T. This study enables to analyze the
cash management system performed and helps to find out the drawbacks of the existing system.
The study will enables the company to plan for its future and will acts as a basis for future
research works.

1.6 HYPOTHESIS
A hypothesis (plural hypotheses) is a proposed explanation for a phenomenon. For a
hypothesis to be a scientific hypothesis, the scientific method requires that one can test it.
Scientists generally base scientific hypotheses on previous observations that cannot satisfactorily
be explained with the available scientific theories. Even though the words "hypothesis" and
"theory" are often used synonymously, a scientific hypothesis is not the same as a scientific
theory.
A scientific hypothesis is a proposed explanation of a phenomenon which still has to be
rigorously tested. In contrast, a scientific theory has undergone extensive testing and is generally
accepted to be the accurate explanation behind an observation. A working hypothesis is a
provisionally accepted hypothesis proposed for further research.
Null hypothesis:
H0: Existing cash management of Forest industries (Travancore)ltd is not effective in the
organization.
4

H1: Existing cash management system of Forest industries (Travancore)ltd is effective in the
organization.

1.7 METHODOLOGY OF THE STUDY

The research methodology is a way of systematically solve the research problem. It is
the science of studying how research is done scientifically for getting pertinent information on a
specific topic long with the logic behind.Meet the objectives mentioned, the methodology
adopted is a detailed study of the cash in order to management system. The study follows a
research method. Firstly the main objectives of the study were set and then the hypotheses were
formulated. Data used in this study are of both primary and secondary in nature. Primary data
collection include personnel interaction with the staff of Forest Industries(Travancore) ltd And
the secondary data was collected from annual reports of the companies, company websites,
manual reports.
Tools used for data collection:
i.

Personnel interaction with the staff of Forest Industries (Travancore)Ltd.

ii.

Annual reports of last five years.

iii.

Method of analysis: cash inflow and out flow analysis, chi-square test analysis,
bar diagram, pie diagram.

1.8 PERIOD OF THE STUDY

The duration of the project is 45 days (from May 2nd 2015to June 30th 2015) at Forest Industries
(Travancore) ltd.
5

1.9 CHAPTER SCHEMES

The report of the study is presented in five chapters.

Chapter 1 Introduction

It includes introduction to the study, statement of the problem, significance of the

study, scope of the study, objectives of the study, hypothesis, methodology, period of the study,
chapter scheme, assumption of the study, limitations of the study.

Chapter 2 Review of Related Literature

It includes Industry profile, company profile, theoretical background of the study,

recent studies on the topic, and review on Research Methodology.

Chapter 3 Research Methodology

It includes research design, study approaches, sources of data collection, data

collection instruments, sampling techniques, statistical tools for data analysis.

Chapter 4 Data Analysis and Interpretation

It includes the different tools for data analysis, tables and charts used to show the
consolidated data.

Chapter 5 Summary and conclusions

This chapter includes the findings, suggestions and conclusion regarding the topic
and study.
6

1.10 ASSUMPTIONS OF THE STUDY

The assumptions of the study consist of the population which is considered for the
study is mainly based on the annual reports such as Balance sheet, P& L account and Cash flow
statement. The sample size for the study is considered as the data, collected for about 5years i.e.
from 2010-2014.

1.11 LIMITATIONS OF THE STUDY

Time constraints:
Time was a bit short and hence was not able to make the study in depth. But still all
efforts to the best possible extent have been made to collect the data.

Data collection constraints:

Since data collected used is secondary in nature, this poses the constraints on the validity
and reliability of the data.

Secrecy of internal data:

Today, companies are very sensitive regarding their internal data and this proved a
hindrance to the study.

Period of analysis:
Sample size for 7years has taken for the study which was sufficient for the study but a
bigger sample will be more effective.

CHAPTER -II
REVIEW OF RELATED LITERATURE

2.1 INDUSTRY PROFILE:

GLOBAL SCENARIO OF FURNITURE INDUSTRY
The word furniture comes from the French word "furniture which means
equipment. Furniture is the name given to all movable and non-movable accessories for rooms or
other areas of any structure from cottage I to palace or religious edifice. It may make from a
wide range of materials but wood and metal are mainly usually used. In olden days people were
using mud and stones for making furniture. As time passed, people started using wood. Due to
this reason there was a development in the field of furniture. During the long span of time the
basic forms of furniture such as chair, table and cot Etc. Evolved and passes on to the succeeding
people and culture for refinement and amplification.

HISTORY OF FURNITURE INDUSTRY

A comparatively high labor cost and still ranking number one is the world furniture
trade. Consumer attitude is going to become all the more self-conscious. Furniture companies
must look towards the important and potential giant Indian consumer market.In china, furniture
distribution channels show somehow different pattern in comparison with those of in western
countries, focusing on Beijing, shanghai, and Shenzhen. The impact of Asian crisis did not stop
china from seeking greater efficiency in furniture industry. The beginning of modem furniture
design emerged after the 1st world war. It was of three kinds:

Functionalist modem

Traditional modem.

Commercial modem
The commercial modem became associates with extra values which

commercial furniture is offered by the manner in which it was advertised. All furniture design
was influenced by social and economic trends of theera. In general furniture produced in the last
5000 years had not undergone development in any produced scene. A brief history of the
development of furniture in various parts of the world is given below:

EGYPTIAN
Climate & belief in immortality are responsible for more being known about Egyptian
furniture than that of other civilizations antedating the Christian era. The Egyptians were partial
to decorative furniture. In lays of livory, mother of pearl, faience, semi precious stones, gold and
other metals] frequently enhanced the pieces. The woods used were sycamore, cedar,1 acacia,
olive wood, yow and bony. Most of these were obtained from other lands because of scarcity of
other than palm trees in Nile valley .Egyptians Were in fact so much outstanding furniture
makers of the ancient World, which their forms served as models for other civilization such as
Assyrian, Babylonian and Hebrew.
GREEK
Knowledge of furniture in use during the classical age of Greece has been gleaned from
the decryption of contemporary writers and from piece shown of their fine vases and in their
sculpture groups. Although some of it may be made after Egyptian models, Greek furniture was
consistently lighter and more delicate. Wood used was native olive wood, cedar, yew, box and
ebony. Bronze was favored material for the piece. Some of the finest Couches were lavishly

10

decorated and has cushion covered with silk that had reached Greece from China via the already
existent caravan route across Asia. Apparently this was the first use of silk in the western world.
ROMAN
Knowledge of roman furniture, like that of the ancient civilization, has to depend
largely on contemporary written, painted or sculptured descriptions representations. Basically
roman furniture was the first copied from the Greek. Then as the empire Expanded, it became
more elaborate in keeping with the prevailing luxury of the Upper class. Such furniture was
lavishly carved with intricate inlays of ivory, tortoise shell, boxwood, holly, ebony, stained bone
and the like.
FRENCH
The ultimate in decorative furniture in the opinion of many critics was that made by
French choristers of the Louis XV period. Mahogany was the chief wood used for fine pieces,
but for others Oak, Walnut, Cherry and other fruitwood and rosewood were used.
DUTCH
In furniture design the Dutch reflected Spanish rule, French Proximity, and oriental
commerce. Their furniture was basically Gothic combined with holian ornamentation.
MEDIEVAL AND GOTHIC FURNITURE
Architectural in the proportions, gothic furniture appears unnecessarily heavy and
cumbersome to modem eyes .As gothic designs spread to other European countries certain
discriminative Characteristics developed.

11

ENGLISH
This follows the current style in Europe, but in a simplified, adaptive form. Its main
characteristics are nice proportion, dignity and restraint in decorations and certain fitness for
intended use.
AMERICAN FURNITURE
Furniture making in America started before 160 and has proceeded! Un interruptedly ever
since. It is of two kinds.
1) Handmade as individual pieces by cabinet makers at their benches.
2) Factory made in quantity with machine tools, coercible today as antique furniture is
that made by cabinetmakers and every early product of the factories.

INDIAN SCENARIO OF FURNITURE INDUSTRY

Indian furniture production is worth about us $ 1,700 million. The Indian furniture
market can be defined as non-organized as non-industrial companies Provide 85% of the
production. Artisan forms are concentrated in the wooden furniture segment, while metal and
plastic furniture produced on a medium large scale and intended for professional use is provided
by the organized Sector, where some 5000 companies are active: 8% of them produce wooden
furniture, 10% metal furniture and 82% are the manufactures of accessories and furnishing items
in plastic. This report offers a comprehensive picture of the furniture market in India providing
trends in furniture production and consumption, international trade, prices distribution. Indian
furniture production is broken down by material and furniture, consumption is broken down by
12

material and furniture, and consumption is broken down by product type or variety. The office
furniture segment, particularly metal furniture is much more advanced that the home furniture
and a larger % of its production is exported.
The Indian furniture industry as a whole employs around a total of 30
workers. The country breaks down furniture imports and exports, by product and by material.
Ancient sculptures, Statues, temples and other buildings are excellent examples of carving
works. Ancient furniture is also example of unique work. In ancient stages furniture are made
with copper, silver, wood etc. But now it has been changed to iron, plastic, steel etc. But that
does not mean that the demand for wooden furniture has decreased. Furniture industries of India
are concentrated in New Delhi, Maharashtra, Kerala, U.P and Tamil Nadu.

Major wood-based industries are;

1 Grasim industries, Mulavoor.
2 Hindustan new sprint LTD.
3 Kerala State Bamboo Corporation.
4 Travancore Plywood Industries.
5 Kerala State Wood Industries LTD, Nilambur.
6 Forest Industries (Travancore) LTD, Aluva.
7 Western Indian Plywood.
8 Punalure paper mills.

13

2.2

PROFILE OF FOREST INDUSTRIES (TRAVANCORE) LTD

Forest Industries (Travancore) Limited is a company incorporated in 1946. It is a

Kerala government undertaking, situated at Thaikkattukara near Aluva in Eranakulam District of
Kerala. The company engaged in the current business of manufacturing and marketing of
wooden furniture, door, windows and joineries since 1963. The company was incorporated on
10th August 1946 under the Travancore companies Act of ME (Malayalam Era) 1114 with the
object of exploiting and selling timber and other forest products from the malayattoor division
and elsewhere in the state of Travancore.
The initial authorized capital was 1 crore (10 lakh shares of 10 each). But the
authorized capital was revised to 50 lakhs by a special resolution passed on 31/12/1957.
Companies Act of 1956 was made applicable to the company by a special resolution passed at
the annual general meeting held on 27/6/1960.Government of Travancore, based on an
arrangement allowed FACT to extract firewood from an area of 114 square miles in the
Malayattoor forest to manufacture carbon monoxide for their fertilizer unit.
In terms of the object clause, F.I.T took up the job on behalf of FACT, based on an
arrangement with FACT, which was approved by the government through another agreement
between FIT and government. Thus, the operations of FIT at that time were governed by three
agreements viz. agreement between government and FACT, FACT and FIT, FIT and
government. The operations initially for 20 years. Forest Industries (Travancore) Ltd became a
government company in 1960, when government of Kerala acquired majority share. In

14

1961,FACT changed its technology for the manufacture of fertilizer and there by agreement with
FACT practically expired.
In 1962, a second hand plant for manufacture of Furniture was purchased and
the same was installed. The furniture manufacture commenced in 1963.Since the company is
engaged in manufacturing of wooden furniture, joineries and chemical treatment of wood and
wooden material. F.I.T LTD is only public sector undertaking in Kerala solely engaged in the
business of wood products. The main customers of the company are the government
departments, organizations, institutions and local bodies. The chief raw material i.e. the timber is
obtained from government owned forest depots by participating in auctions conducted and from
private parties through tender.
During early seventies the company started exporting its furniture and allied
items to the gulf countries. During the time the Exports were made through Kerala State
Industrial Enterprises (KSIE). But the export was not very attractive to F.I.T because of the
presence of the intermediary. Presently the company is not exporting any of its products and is
now entering to the domestic market only.

MISSION OF THE COMPANY

The main mission of the company is that the supply of qualified furniture and
other products at competitive price to customers for customer satisfaction. It concerned for
environmental and safety of the company.

15

MISSION STATEMENT
The company is intended to achieve;

Cost efficiency in all operations.

Regular up gradation of technology.

CORPORATIVE OBJECTIVE OF F.I.T

The corporate objectives of the company are listed below.

To produce and market high quality products at lowest price.

To improve operational efficiency to maintain optimum productivity.
To increase profit without sacrificing quality of products.
To promote organization development and to upgrade the quality of human
resources the company to facilitate the survival of the company in the changing
business environment.
To improve the safety measure and provide best working conditions to the workers
in the plant.
To upgrade the machinery.

MANAGEMENT OF F.I.T
There is a 9 member team of Board of directors to manage FIT. The managing director
of the company looks after the day-to-day affairs. The executives at different level help the MD
in carrying out his work smoothly. There are directors to assist chairman and MD. The directors
also include those nominated by the government of Kerala.
16

Table 2.1 Board of Directors

NAME OF MEMBERS

DESIGNATION

Shri.C.A M.A Kareem

Chairman

Shri.Azim Ismail

Managing Director

Shri.V.Rajappan

Director

Smt.Minimol V.G

Director

Shri.C.S. Yalakki,IFS

Director

Shri.N.A.Aboobacker Master

Director

Shri.H.E.Mohammed Babu Sait

Director

Shri.T.S. Ramdas

Director

Shri.P.K. Thangal

Director

17

Organization structure of F.I.T

BOARD OF DIRECTORS

MANAGING DIRECTOR

PERSONAL
AND
ADMINIST
RATION

FINANCE
AND
ACCOUNTS
MANAGER

SECURITY
OFFICER

ASS.MANAGER
(F&A)

ASS.ACCOUNTANT

ACCOUNTS
CLERK

STAFFS

PRODUCTI
ON
MANAGER

ASS.MANAGER
(WORKERS)

PURCHASE
MANAGER

PLANNING
AND
MARKETIN
G
MANAGER

CHIEF STORE
KEEPER

ASS.MANAG
ER

STORE
ASSISTANT

JR.EXECUTIVE

SUPERVI
SOR

SUPERVI
SOR

STAFFS

SUPERVI
SOR

STAFFS
STAFFS

18

Finance and Accounts Department

Financial management is the vital part of management of any business organization.
Proper planning control of financial resources is inevitable for success of business enterprise. It
is the function of the financial department to control the procurement and allocation of funds in
the business organization.

Finance manager of the company has sufficient experience in

accounting, taxation company law and financial management.

The company maintained its accounts on the accrual basis showing the historical
cost convention in compliance with the requirements of the companys act 1956.Fixed assets are
stated at original cost less accumulated depreciation. Depreciation is provided in the accounts on
straight line basis at the rated and in the manner prescribed in schedule six of the companies act.
Raw materials are valued at average cost. Working progress is valued at the price
fixed by the price committee as per government order. Finished goods are valued at the selling
price less than 10% to arrive at the estimated cost and the basis adopted is same as in the
previous year. Investments are valued at cost. The company has made adequate provision
towards bad and doubtful debts, considering the volume and tendency of the debts.
The main functions of finance department include the following:

Maintaining a good journal for recording daily business transaction.

Procurement and allocation of funds.

Keeping the record of stock purchased, accounts receivable and timely submission of the
same to the insurance and banking authorities.

19

Preparation of fund and cash flow statements in every month.

Controlling the cost of production and various other expenses.

Preparation and maintenance of cost of records.

Yearly income tax returns are to be prepared and filed.

Receiving payments from the customers within one month.

Maintaining cash book and pass book.

Prepare purchase register and sales register

Maintain debtors and creditors ledger.

Passing purchase bill.

Handling statutory internal audits.

Financial reports are prepared quarterly.

Preparation of annual reports.

Preparation of profit and loss account and balance sheet.

Giving monthly reports of the financial performance of the company to the top
management.

Auditing of complete purchase files, pre audit of purchase books, checking of sales
invoice various ledgers and perpetual stock and assets verification.

Sales accounting, sales budget and expenditure budget are to be prepared on a regular
basis.

20

HIGHLIGHTS
The company always has an attention to adopt and accept modern technologies in
its plants. They introduce several innovations and modernizations schemes to achieve higher
productivity and energy conservation, environmental control and economy inputs. The company
markets their products with a view to profitability. F.I.T has no subsidiaries, branches Etc. They
have only one office at Thaikkattukara, Aluva. They are only the monopolist in this field. They
providing after sales service to their customers. The company got award in the year 2005-2006
given by central government named as Best Public Sector.State bank of Travancore is the only
bank of Forest Industries (Travancore)ltd.
F.I.T Shares at present:
TABLE 2.2F.I.TS Share at Present
Government of Kerala

77.41

Financial Institution

1.14

Public

21.45

Total

100

GENERAL INFORMATION
Incorporation

Year 1946(under companies act 1913).

Ownership

-F.I.T is owned by Joint Stock Company.

Type of capital

-Equity shares.

21

MAJOR CUSTOMERS OF F.I.T

The following are the major customers of F.I.T.

Kerala government

Government Institutions

Public

RECOGANISED UNIONS IN F.I.T

In Forest Industries (Travancore) ltd mainly there is three recognized unions they are as follows:

F.I.T Staff and Workers association

F.I.T Employees Union

F.I.T Staff and Organization.

Performance highlights of F.I.T

Table 2.3
YEAR

TURNOVER

PROFIT

PROFIT AFTER

BEFORE

TAX(IN

TAX(IN

CRORES)

CRORES)
2009-2010

807.90

11.07

7.49

2010-2011

772.40

4.58

2.35

2011-2012

1231.80

6.52

9.18

2012-2013

1537.72

6.18

48.37

2013-2014

3159.09

2.27

54.92

22

FIGURE 2.1 FINANCIAL STATUS OF F.I.T LTD

TURNOVER
3500
3000
2500
2000
TURNOVER

1500
1000
500
0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

PRODUCT PROFILE

The Forest Industries (Travancore) Ltd was established in 1946, is only government
owned company in Kerala exclusively engaged in manufacture of wooden furniture and
joineries. Over the last six decades, FIT has served its past quite efficiently to provide high
quality furniture at Reasonable rate. The high precision machinery and highly skilled work force
ensure that our product attain the best possible quality. Apart from wooden furniture, FIT also
Manufacture steel furniture, does custom interiors, aluminum/steel fabrication and modular work
station for corporate civil/electrical works etc
FIT has a wide range of home furniture and dcor solutions to provide the warmth and
comfort of a relaxed family life. The range includes sofas, cabins, telephone stands, center table,
corner stand etc. For bedrooms FIT present more sophisticated, superior and stylish range of
furniture, economically designed bedroom tables and chairs ensure their no wastage of space and
23

provide at most comfort and relaxation. Thoughtfully designed dining and kitchen furniture is
also available in F.I.T.The perfectly designed

tables and chairs provide for restful

meals.

They are adaptable, affordable and are here to stay, above all.
The forest Industries Travancore limited produces elegant and value for money
product that are last a lifetime. Being a government of Kerala undertaking, there is no
compromise on the quality of the product. Only Nilambure teak and other high-qualified woods
are use for making furniture and whats more, all furniture is making in accordance with Vasthu
principles. This makes it unique in many ways. From the assembly buildings to universities to
solutions .F.I.T also offer home packages to suite your needs and custom designs to suite your
budget.
F.I.T have 500sq cm showroom situated at Thaikkattukara in F.I.T campus. And
they use only high quality woods for our products and hence the durability. In order to further
strengthen the same, they set up a quality assurance section headed by qualified and experienced
wood technologist.FIT is specialized in excellent quality wood products manufactured from
superior quality timber by highly skilled employees. Government has already issued an order
directing government department organization, institutions local bodies etc, to purchase its
requirements of wooden items from FIT without tender formalities.

Following are the quality wooden product available in company showroom:

Dining table
Dining chair with cushion seat
Deluxe type settee set, round frame type cushion covered with best
Quality furnishing cloth.

24

 Turned leg, settee set, reaper seat & back loose cushion covered with
Best quality.
Cot with ornamental head board & leg board turned pieces.
Bed side locker with shelf, complete in plywood & Formica.
Towel rack with 4 hooks.
Easy chair plastic seat with long arm. Turned legs.
Dressing table with oval shape mirror with 2 drawers & shelf.
TV stand, turned legs with 3 steps.
Divan coat turned legs with loose cushion & 2 round pillows without
Head rest & also with both side rest board.
Rocking chair with loose cushion.
TV chair folding type with nylon cloth seat.
Canvas chair with long arm rest without cloth, folding type.
Tea poi, top glass, bottom reaper shelf.

1) DOMESTIC PRODUCTS:-

Dining table
Chair
Sofa
Divan
Almirah
Study table
25

 Screen.
Settee.
Showcase.
Ladder.
Stool.

Cabinet(kitchen cabinet)

Cot.
Stand.
Footrest.

2) Furniture for government office & school

Chair
Conference
Benches.
Stools
Flooring tiles
Wall paneling
joinery
Doors.
Windows
Shutters.
26

 Frames.
Ventilator.

Raw materials used:The raw materials presently used are teak, Rosewood, Anjali& hardwood & are
available from the government forest to FIT. Saw mill takes wood directly, without any kind of
seasoning. Wood has been an integral part of civilization. It is one of the earliest known building
materials. Wood requires small part of energy utilization compared to very other building
material others need large input of energy to convert it to a usable product.
The traditional timber like Teak, rosewood etc..Naturally durable & resistant to
bio -degrading mechanism in nature. This quality is inbuilt in these species. With the advent of
modern technology & increased demand for wood, The time between feelings of the tree the
point of usage has dramatically come down. This also has a major problem on the quality of
wood. Therefore artificial seasoning is must.

F.I.TS MAIN PRODUCTS

1) Wooden products
2) Modular workstations
3) Interior decorations
4) Aluminum partitions
5) Civil contracts
6) Electrical contracts

27

FUTURE PLANS OF F.I.T LTD

During 2003-04 company did not undertake any R&D activities. Company is
planning to associate with KFRI, SISA etc. in order to develop new designs in furniture and
joineries and R&D activities. The company is formulating a program for replacing obsolete
equipments for conserving energy. Electronic chokes are being used for tube lights.
Studies are being conducted for identifying further energy conservation areas. Impact
of such reduction of energy consumption on the cost of production of goods to be the undertaken
will be the identified after implementation.

TECHNNOLOGY ADAPTION, ABSORPTION AND INNOVATION

At present the company is using convention method for the manufacture of its
products. They are planning to add new and more sophisticated method in the production
process. During the year by improving design, company could manufacture attractive modern
and by using improved designs, it is expected that cost, reduction, product improvement etc.
could be achieved

2.3

THEORETICAL BACKGROUND OF THE STUDY

Introduction to cash management:

Cash is the most liquid assets of vital importance of the daily operations of
business firm. Cash is the basic input needed to keep the business running on continues basis. It

28

is also an ultimate output expected to be realized by selling the service of product manufactured
by the firm.
Cash is the life blood of every business, so a manager can aware about how to
manage the cash management of the firm. After the preparation of cash budget, the financial
manager should also ensure that are no significant differences between the expected/budgeted
cash flows and the actual cash flows. This requires controlling and reviewing of the whole
exercise on a regular basis. The financial manager should take appropriate steps for preventing
any unexpected deviation in both the inflows as well as outflows.
Nature of cash:
For some persons, cash means only in the form of currency. For other persons, cash
means both cash in hand and at bank. Some even include near cash assets in it. They take
marketable securities too as part of cash. These are the securities which can easily be converted
into cash. These viewpoints reflect the degree of freedom of the persons using the cash. Whether
a persons wants to use it immediately or can wait for a time to use it depends upon the needs of
the concerned persons. Cash itself does not produce goods or services. It is used as a medium to
acquire other assets. It is the other assets which are used in manufacturing goods or providing
services. The idle cash can be deposited in bank to earn interest.
A business has to keep required cash for meeting various needs. The assets acquired
by cash again help the business in producing cash. The goods manufactured or services produced
are sold to acquire cash. A firm will have to maintain a critical level of cash. If at a time does not
have sufficient cash with it,it will have to borrow from the market for reaching the required level
.
29

MOTIVES FOR HOLDING CASH

The firms need for cash may be attributed to the following needs:

Transaction motive

Precautionary motive

Speculative motive

Some peoples are of the view that a business requires cash only for the first two motives while
others feel that speculative motive also remains. These are discussed as follows:
1. Transaction Motive:
A firm needs cash for making transactions in the day to day operations. The cash is needed to
make purchase, pay expenses, taxes, dividend etc. The transaction needs of cash can be
anticipated because the expected payments in near future can be estimated. The receipts in future
may also be anticipated but the things do not happen as desired.
2 Precautionary Motive:
A firm is required to keep cash for meeting various contingencies. Though cash inflows and
cash outflows are anticipated but there may be variations in these estimates. A firm should keep
some cash for such contingencies or it should be in a position to raise finance at a short period.
The cash maintained contingency is not productive or it remains ideal. However, such cash may
be invested in short period or low risk marketable securities which may provide cash such as
and when necessary.

30

3. Speculative Motive:
The speculative motive relates to holding of cash for investing in profitable opportunities as and
when they arise .Such ooportunities do not come in a regular manner.these opportunities cannot
be scientifically predicted but only conjectures can be made about their occurrence.The primary
motive of a firm is not to indulge in speculative transactions but such investments may be made
at times.

CASH MANAGEMENT
Cash management is concerned with the managing of: (i) Cash flows into and out of the firm,
(ii) Cash flows within the firm, and (iii) Cash balances held by the firm at a point of time by
financing deficit or investing surplus cash. It can be represented by a cash management cycle.
Sales generate cash which has to be disbursed out. The surplus cash has to be invested while
deficit this cycle at a minimum cost. At the same time, it also seeks to achieve liquidity and
control. Cash management assumes more importance than other current assets because cash is
the most significant and the least productive asset that a firms holds. It is significant because it
is used to pay the firms obligations. However, cash is unproductive. Unlike fixed assets or
inventories, it does not produce goods for sale. Therefore, the aim of cash management is to
maintain adequate control over cash position to keep the firm sufficiently liquid and to use
excess cash in some profitable way.
In simple words Cash management has assumed importance because it is the most significant of
all the current assets. It is required to meet business obligations and it is unproductive when not
used.
31

Cash management deals with the following:

i.

Cash inflows and outflows

ii.

Cash flows within the firm

iii.

Cash balances held by the firm at a point of time.

Cash management needs strategies to deal with various faces of cash. Following are some of

its facts:

Cash planning:

Cash planning is a technique to plan and control the use of cash. A projected cash flow
statement may be prepared, based on the present business operations and anticipated future
activities. The cash inflows from various sources may be anticipated and cash outflows will
determine the possible uses of cash.

Managing the cash flows: The firm should decide about the properly managed. The
cash inflows should be accelerated while, as far as possible, the cash outflows should be
decelerated.

Optimum cash level:

the firm should decide about the appropriate level of cash

balances. The cost of excess cash and danger of cash deficiency should be matched to
determine the optimum level of cash balances.

Investing surplus cash: The surplus cash balances should be properly invested to earn
profits. The firms should decide about the division of such cash balances between

32

alternative short-term investment opportunities such as bank deposits, marketable

securities, or inter-corporate lending.

Cash forecasts and budgeting:

A cash budget is the most important device for the control of receipts and payments of

cash. A cash budget is an estimates of cash receipts and disbursements during a future period of
time. It is an analysis of flow of cash in a business over a future, short or long period of time. It
is a forecast of expected cash intake and outlay.
The short term forecasts can be made with the help of cash flow projections. The finance
manager will make estimates of likely receipts in the near future and the expected disbursements
in that period. Through it is not possible to make exact forecasts even then estimates of cash
flows will enable the planners to make arrangement for cash needs.it may so happen that
expected cash receipts may fall short or payments may exceed estimates.The long term forecasts
are also essential for proper cash planning. These estimates may be for three, four, five or more
years. Long term forecasts indicate companys future financial needs for working capital, capital
projects, etc.
FUNCTIONS OF CASH MANEGEMENT
The management of cash is important because it bring into sharp focus the trade-off between
risk and return faced by financial manager. Cash is held for the following:
1. Transaction balance:
The transactions motive requires a firm to hold cash to conduct its business in the
ordinary course. The firm needs cash primarily to make payments for purchases, wages and
salaries, other operating expenses, taxes, dividends etc. The need to hold cash would not arise if
33

there were perfect synchronization between cash receipts and cash payments, i.e., enough cash is
received when the payment has to be made. But cash receipts and payments are not perfectly
synchronized. For those periods, when cash payments exceed cash receipts, the firm should
maintain some cash balance to be able to make required payments. For transactions purpose, a
firm may invest its cash in marketable securities. Usually, the firm will purchase securities
whose maturity corresponds with some anticipated payments, such as dividends or taxes in the
future. Notice that the transactions motive mainly refers to holding cash to meet anticipated
payments whose timing is not perfectly matched with cash receipts.
2. Precautionary balance:
The precautionary motive is the need to hold cash to meet contingencies in the
future.

It provides a cushion or buffer to withstand some unexpected emergency.

The

precautionary amount of cash depends upon the predictability of cash flows. If cash flows can
be predicted with accuracy, less cash will be maintained for an emergency. The amount of
precautionary cash is also influenced by the firms ability to borrow at short notice when the
need arises.

Stronger the ability of the firm to borrow at short notice, less the need for

precautionary balance.

The precautionary balance may be kept in cash and marketable

securities. Marketable securities play an important role here. The amount of cash set aside for
precautionary reasons is not expected to earn anything; the firm should attempt to earn some
profit on it. Such funds should be invested in high-liquid and low-risk marketable securities.
Precautionary balances should, thus, be held more in marketable securities and relatively less in
cash.

34

3. Speculative balance:
The speculative motive relates to the holding of cash for investing in profit-making
opportunity to make profit may arise when the security prices change. The firm will hold cash,
when it is expected that interest rates will rise and security prices will fall. Securities can be
purchased when the interest rate is expected to fall; the firm will benefit by the subsequent fall in
interest rates and increase in security prices. The firm may also speculate on materials prices. If
it is expected that materials prices will fall, the firm can postpone materials purchasing and make
purchases in future when pric4e actually falls. Some firms may hold cash for speculative
purposes. By and large, business firms do not engage in speculations. Thus, the primary
motives to hold cash and marketable securities are: the transactions and the precautionary
motives.
4. Investing balance: cash is required
1. For meeting operational requirements.
2. For providing liquidity reserves against:
a) Routine net outflows of cash.
b) Scheduling of major outlays.
c) Exploitation of possible particulars for advantages long term investment.
d) Unexpected drains of cash.
3. Maintenance of bank relationship
4. Building of an investment image and other such intangible.
5. Constructing a reserve for net cash inflows, pending an opportunity for a better use of
funds.

35

5. Meeting operational requirements:

Most firms find it converts to keep on hand small amounts of petty cash to make
disbursements; but the cash account consists primarily of deposits on commercial banks. During
the initial period, liquidity is unlikely to become strained because demand for as product is such
that a firm can stipulate cash on delivery, while raw are purchased on normal trade credit terms.
6. Providing liquidity reserves:
If the daily cash receipts almost exactly match the daily outflows, the total cash balance need
not be high to meet purely operational needs. However ,even flows in actual practice can hardly
be expected. Consequently ,the cash account performs the function of absorbing a part of normal
cash inflows from day today and week to week.
7. Maintaining bank relationship:
Every firm has to maintain a satisfactory bank relationship. It is necessary for every firm to
keep deposit balance in the bank which is in a position to providing help it by such services as
credit information, advices for raising funds ,etc. are seem to be three basic reasons why
corporations hold cash in a bank.
a) To satisfies their bank about their account activity, services, goodwill, and bank
loans.
b) To provide for transaction involving normal operations and capital expenditure.
c) To provide for contingencies.

36

8. Investment image:
Investment in money assets enables a firm to improve its investments image. Liquidity is
the primary consideration of every firm, for it is one basis that it can win the confidence of it
investors.
ADVANTAGES OF CASH MANAGEMENT

1. The availability of cash may be a matter of life or death. A sufficient of cash keep an
unsuccessful firm going despite losses.
2. Cash may be sold like the blood stream in a living body ;for it is much the lifeblood of
business.
3. The first priority of my business is survival, and this cannot be assured, even in the short
run, unless a company remains both liquid and solvent.
4. Cash management involves balance sheet changes and other cash flows that do not
appear in the profit and loss account such as capital expenditure.
5. It views problem in a dynamic context over a period of time.
6. It yields a plan as an integral part of the procedure.
DISADVANTAGES OF CASH MANAGEMENT
1. It may offer a solution of compensation which is not justified on the basis of a concentrate
notation, particular when the business economy in an uncertain word.

37

2. It considers economic recession as the main sources of uncertainty but ignores technological
developments, shifts in consumer preference, political changes, etc ;.moreover ,recessions are
not the sources of economic unhappiness.
3. The cost of holding cash is the profit that could have been earned had the funds been put to
another use.
4. Financial distress usually is a matter of degree, while the declaration of the bank raptly is an
indication of this distress in an extreme form. .Middle firms of financial distress occure when a
firms cash flow fall below expectations.
OTHER FACTORS THAT AFFECT THE SIZE OF CASH BALANCE
1. Availability of short-term credit:
To avoid holding unnecessary large balances of cash, most firms attempt to make
arrangements at borrow money is case of unexpected needs. With such an agreement, the firm
normally pays interest only during the period that the money is actually used.
2. Money market rates:
If money will bring a low return a firm may choose not to invest it. Since the loss or profit is
small, it may not be worth the trouble to make the loan. On the other hand, if interest rates are
very high, every extra rupee will be invested.
3. Variation in cash flows:
Some firms experience wide fluctuation in cash flows as a routine matter. A firm with
steady cash flows can maintain a fairly uniform cash balance.

38

4. Compensating balance:
If a firm has borrowed money from a bank, the loan agreement may require the firm to
maintain a minimum balance of cash in its accounts. This is called compensating balance. In
effect this requires the firm to use the services of bank a guaranteed deposit on which it pays no
interest. The interest free deposit is the banks compensation for its advice and assistance.
CASH MANAGEMENT BASIS STRATEGIES
The management should, after knowing the cash position by means of the cash budget,
work out the basic strategies to be employed to manage its cash.
CASH CYCLE:
The cash cycle refers to the process by which cash is used to purchase materials from
which are produced goods, which are them sold to cstomers.
Cash cycle=Average age of firms inventory
+Days to collect its accounts receivables
-Days to pay its accounts payable.

The cash turnover means the numbers of times firms cash is used during each year.
360
Cash turnover = -----------Cash cycle
39

The higher the cash turnover, the less cash the firm requires. The firm should, therefore, try to
maximize the cash turn.
MANAGING COLLECTIONS:
a) Prompt Billing:
By preparing and sending the bills promptly, without a time log between the dispatch of
goods and sending the bills, a firm can ensure earlier remittance.
b) Expeditious collection of cheques:
An important aspect of efficient cash management is to process the cheques receives very
promptly.
c) Concentration Banking:
Instead of a single collection center located at the company headquarters, multiple
collection centers are established.

The purpose is to shorten the period between the time

customers mail in their payments and the time when the company has use of the funds are then to
a concentration bank usually a disbursement account.
d) Lock-Box System:
With concentration banking, a collection center receives remittances, processes them and
deposits them in a bank. The purpose is to lock-box system is to eliminate the time between the
receipt of remittances by the company and their deposit in the bank. The company rents a local
post office box and authorizes its bank in each of these cities to pick up remittances in the box.
The bank picks up the mail several times a day and deposits the cheque in the companys

40

accounts. The cheques are recorded and cleared for collection. The company receives a deposits
the cheque in the companys accounts. The cheques are recorded and cleared for collation. The
company receives a deposit slip and a lift of payments. This procedure frees the company from
handling a depositing the cheques.
CONTROL OF DISBURSMENT
a) Stretching Accounts Payable
A firm should pay its accounts payables as late as possible without damaging its credit
standing. It should, however, take advantages of the cash discount available on prompt payment.
b) Centralized Disbursement
One procedure for rightly controlling disbursements is to cenrealise payables in to a
single account, presumably at the companys headquarters. Such an arrangement would enable a
firm to delay payments and can serve cash for several reasons. Firstly, it increases transit time.
Secondly, if a firm has a centralized bank account, a relatively smaller total cash balances will be
needed.
c) Bank Draft
Unlike an ordinary cheque, the draft is not payable on demand. When it is presented to
the issuers bank for collection, the bank must present it to the issuer for acceptance. The funds
then are deposited by the issuing firm to cover payments of the draft. But suppliers prefer
cheques. Also, bank imposes a higher service charge to process them since they require special
attention, usually manual.

41

d) Playing the float

The amount of cheques issued by the firm but not paid for by the bank is referred to as
the payment float. The differences between payment float and collection float are the net
float. So, if a firm enjoys a positive net float, it may issue cheques even if it means having an
ever drown account in its books. Such an action is referred to as playing the float, within
limits a firm can play this game reasonably safely.
Thus management of cash becomes essential and it should be seen to, that neither
excessive nor inadequate cash balances are maintained.
CASH FLOW ANALYSIS
The cash flow analysis is done with the help of cash flow statement. A cash flow
statement is a statement depicting changes in cash position from one period to another. It is an
important planning tool. Cash flow statement gives a clear picture of the source of cash, the uses
of cash and the net changes in cash. The primary purpose of cash flow statement is to show that
as to where from the cash to be acquired and where to use them.
UTILITY OF CASH FLOW ANALYSIS
A Cash flow analysis is an important financial tool for the management. Its chief
advantages are as follows.
1. Helps in efficient cash management
Cash flow analysis helps in evaluating financial policies and cash position. Cash is the
basis for all operation and hence a projected cash flow statement will enable the management to
plan and co-ordinate the financial operations properly. The management can know how much
42

cash is needed from which source it will be derived, how much can be generated, how much can
be utilized.
2. Helps in internal financial management
Cash flow analysis information about funds, which will be available from operations.
This will helps the management in repayment of long-term debt, dividend policies etc.,
3. Discloses the movements of Cash
Cash flow statement discloses the complete picture of cash movement. The increase in
and decrease of cash and the reasons therefore can be known. It discloses the reasons for low
cash balance in spite of heavy operation profits on for heavy cash balance in spite of low profits.
4. Discloses success or failure of cash planning
The extent of success or failure of cash planning be known by comparing the projected
cash flow statement with the actual cash flow statement and necessary remedial measures can be
taken.
DETERMINE THE OPTIMUM CASH BALANCE
One of the primary responsibilities of the financial manager is to maintain a sound
liquidity position of the firm so that the dues are settled in time. The firm needs cash to purchase
raw materials and pay wages and other expenses as well as for paying dividend, interest and
taxes. The test of liquidity is the availability of cash to meet the firms obligations when they
become due.

43

A firm maintains the operating cash balance for transaction purposes. It may also carry
additional cash as a buffer or safety stock. The amount of cash balance will depend on the riskreturn trade-off. If the firm maintains small cash balance, its liquidity position weakens, but its
profitability improves as the released funds can be invested in profitable opportunities
(marketable securities). When the firm needs cash, it can sell its keeps high cash balance, it will
have a strong liquidity position but its profitability will be low. The potential profit foregone on
holding large cash balance is an opportunity cost to the firm. The firm should maintain optimum
just to enough, neither too much nor too little cash balance. How to determine the optimum
cash balance if cash flows are predictable and if they are not predictable.

MODEL OF CASH MANAGEMENT

WILLIAM J. BAUMOLS MODEL :
The BaumolTobin model is an economic model of the transactions demand for
money as developed independently by William Baumol (1952) and James Tobin (1956). The
theory relies on the tradeoff between the liquidity provided by holding money (the ability to
carry out transactions) and the interest forgone by holding ones assets in the form of noninterest bearing money. The key variables of the demand for money are then the nominal interest
rate, the level of real income which corresponds to the amount of desired transactions, and the
fixed transaction costs of transferring ones wealth between liquid money and interest-bearing
assets.

44

Optimum cash balance under certainty

BAUMOLS MODEL
The Baumol model of cash management provides a formal approach for determining a
firms optimum cash balance under certainty. It considers cash management similar to an
inventory management problem. As such, the firm attempts to minimize the sum of the cost of
holding cash (inventory of cash) and the cost of converting marketable securities to cash.
The baumols model makes the following assumptions:

The firm is able to forecast its cash needs with certainty.

The firms cash payments occur uniformly over a period of time.

The opportunity cost of holding cash is known and it does not change over time.

The firm will incur the firm sells securities and starts with a converts securities to cash.

Figure 2.2

45

Cost trade-off: Baumols model

The baumol model is based upon the following assumptions:
(a) The cash needs of the firm are known with certainty.
(b) The cash disbursement (usage) of the firm occurs uniformly over a period of time and
is known with certainty.
(c) The opportunity cost of holding cash is known and it remains constant.
(d) The transaction cost of converting securities into cash is known and remains constant.

The baumol model can also be represented algebraically:

C=

2AF
O

where

C = Optimum balance.
A = Annual (or monthly) cash disbursement
F = Fixed cost per transaction
O = Opportunity cost of holding cash.

46

Optimum Cash Balance under uncertainty:

The Miller-Orr Model:
The limitation of the Baumol model is that it does not allow the cash flows to
fluctuate. Firms in practice do not use their cash balance uniformly nor are they able to predict
do not use their cash inflows and outflows. The Miller-Orr model overcomes this shortcoming
and allows for daily cash flow variation. It assumes that net cash flows are normally distributed
with a zero value of mean and a standard deviation.
The MO model provides for two control limits-the upper control limit and the
lower control limit as well as a return point. If the firms cash flows fluctuate randomly and hit
the upper limit, then it buys sufficient marketable securities to come back to a normal level of
cash balance (the return point). Similarly, when the firms cash flows wander and hit the lower
limit, it sells sufficient marketable securities to bring the cash balance back to the normal level
(the return point)
Fugure 2.2

47

2.4 RECENT STUDIES ON CASH MANAGEMENT:

CASH MANAGEMENT AND CAPITAL BUDGETING PRACTICES
Virginia department of transportation Richmond, Virginia:
Their review has found that Transportation has made significant progress or
completed most of the recommendations made in our 2012 special report. Complete
implementation of these changes will take at least four to five years. Over the last two years,
Transportations management has started not only implementing recommendations, but more
importantly begun implementing a change in the corporate and cultural structure of the
organization. The success of change with Transportation will depend on whether a true structural
change in organization takes place. The measure of success will require a substantial long-term
commitment by management to not only making the change, but to prevent backsliding into
Transportations old approaches.
In some ways, the accomplishments to date are the easy part of change. The harder
part lays ahead in funding and implementing new systems, continuing to make the changes to get
closer to capital budgeting process, and overcoming Transportations corporate and cultural
structure to improve project management. The success of this effort is highly dependent on
management guidance and direction, and current management has demonstrated their dedication
towards this effort. If any management change occurs, it is essential that they have the same
commitment; otherwise, progress may be negatively impacted.

48

Transportation is restoring fiscal accountability by implementing several budgetary

and financial changes, including adopting a debt management policy and model. Additionally,
they are establishing a methodology to identify statewide transportation priorities and developing
project management policies.
Transportation has completed several budgetary and financial changes, including
attempts to make the Six-Year Improvement Program a realistic management tool and reduce the
projects with a deficit status. However, to ensure accurate matching on cash inflows and
outflows, Transportation must begin estimating the cost of projects by fiscal year. Transportation
does not currently have sufficient controls and processes in place to manage the rate at which
they spend funds. For major projects, Transportation has begun assigning a project management
team that follows a project from its inception to its completion. However, it is still too early in
the process to determine if the policies put into place will provide Transportation with better
project management. However, the actions to date are those considered best practices in both the
private and public for large organizations.
Maintenance is still an area of concern at Transportation. The growing maintenance
requirements and the limited ability to budget on a needs-based approach increases the risk of
inappropriately applied funding. Once the asset management system is fully implemented a
needs-based approach will be possible and Transportation will be able identify and prioritize
maintenance projects.

49

2.Ms. Katherine M. Landmann Controller Washington University in St. Louis Campus.

This final report presents the results of our audit of the cash management procedures used by
Washington University in St. Louis (University) to control the funds paid by the Payment
Management System (PMS) during the three years ended June 30, 2009.
They found that the University did not have adequate policies and
procedures in place to monitor daily cash balances and to precisely calculate interest earned on
positive daily cash balances. In monitoring the daily cash balances, the University did not
consider (1) outstanding checks and (2) overhead costs as incurred. In addition, the University
did not use the appropriate interest rates when calculating the interest remitted to the Federal
government.
They determined that the amount of excess interest remitted by the University
was comparable to the amount of interest that should have been remitted if appropriate
procedures had been used. We believe that this occurrence was a coincidence due to offsetting
factors in the Universitys calculation of the amount to be remitted.
They are recommending that the University revise its written policies and procedures to
effectively monitor the daily cash balance and to accurately compute the Federal remittance. We
made four specific recommendations for improving the Universitys cash management
procedures. The University concurred with two and is still evaluating the third. However, they
did not accept our fourth recommendation. The Universitys response is included in its entirety
as Appendix A.

50

3. Cash Management by Enid Beverly Jones

It is a Financial Overview for School Administrators is a succinct overview of public school
finance, presenting concepts of importance to both site-based and central-office leaders. A
pragmatic blend of theoretical concepts and factual information provides readers with an
excellent synopsis of public school finance.

The economics and politics of education are discussed in the context of

human capital and the role of public education in the United States as an investment in human
capital. Author Enid Jones, who is an associate professor of school finance at Fayetteville State
University, stresses the importance of investment in human capital and its necessity for an
educated, productive workforce.

The chapter on adequacy and equity provides an understanding of the two

concepts so frequently debated in school finance. As more states struggle with funding issues,
this subject matter is timely and useful. Cash Management seems intended for use nationwide
with information on basic school business procedures, including budgeting and financing of
school facilities. The use of lay terminology and relevant examples make the book valuable both
in graduate school classes on educational leadership and in the hands of practicing
administrators.(Cash Management: A Financial Overview for School Administrators, by Enid
Beverley Jones, Scarecrow Press, Lanham, Md., 2001)

51

1.6 REVIEWS ON RESEARCH METHODOLOGY:

Research is an organized & systematic way of finding answers to questions. It should be
systematic because there are definite set of procedures & steps which the researcher has to
follow. It should be organized because there is a structure or method in doing research. It is a
planned procedure. Research work cannot be done spontaneous.
Cash management is concerned with the management of cash inflows,
outflows and cash flows within the firm. It also includes the matters relating to financing of
deficit and investment of surplus cash so as to maintain optimum cash balance. Hence in order to
solve the problems as well as issues related to the cash management, a research process is being
carried out with the set hypothesis. This will results into the analysis of the statement of the
problems related to the cash management issues followed by the data collection and hence will
leads to attainment of the objectives by using the cash management techniques such as
percentage analysis, ratio analysis, Baumols model etc.

52

CHAPTER III
RESEARCH METHODOLOGY

53

3.1 RESEARCH DESIGN

A research design is a map developed to guide the research. It is a part of the planning stage of
research, a blue print for the collection, measurement and analysis of data. A good research
design serves three important functions; firstly, it gives a blueprint for research, secondly, it
limits the boundaries of research activity and makes systematic investigation possible. Thirdly, it
enables a researcher to anticipate potential problems that he may encounter the future.
A practical research design comprises of four phases:

The sampling design which deals with the method of selecting items to be observed for
the given study

The observational design which relates to the conditions under which the observations
are to be made.

The statistical design which concerns with the question of how many items are to be
observed and how the information and data gathered are to be analyzed

The operational design which deals with the techniques by which the procedures
specified in the sampling, statistical and observational designs can be carried out.

Research design has some important features. It is a plan that specifies the sources and types of
information relevant to the research problem. It is a strategy specifying which approach will be
used for gathering and analyzing the data. It also includes the time and cost budgets since most
studies are done under these two constraints. This study has its research design as follows:

54

3.2 STUDY APPROACH

Research is an organized & systematic way of finding answers to questions. It should be
systematic because there are definite set of procedures & steps which the researcher has to
follow. It should be organized because there is a structure or method in doing research. It is a
planned procedure. Research work cannot be done spontaneous. To attain the objectives of this
project the following research methods were used.

Quantitative approach

Qualitative approach

Quantitative approach:
In the Quantitative approach, research is based on measurable quantities. Therefore, in this
approach, data are available in the quantitative form. This approach are further be classified into
Inferential, experimental and simulation approaches. The inferential approach aims at forming a
database from which to infer characteristics or relationships of population. In experimental
approach, some variables are manipulated to observe their effect on their variables. Simulation
approach involves construction of an artificial environment within which relevant information
and data can be generated.
Qualitative approach:
Qualitative approach to research is concerned with subjective assessment of
attitudes, opinions and behaviors. Research in such situations is a function of researchers insight
and impressions. The approach adopted in this study is the quantitative approach by analyzing
the data collected with the help of inventory techniques and statistical tools

55

3.3 TECHNIQUES OF DATA COLLECTION

The relevant data in the subject under study has been collected from the following sources.

1. Primary Data

The primary data are those data which are collected by the investigator for the first
time. The primary data was collected with the help of a informal talk with officers.The
investigator has made a face to face interaction to get the exact data, since it clarifies doubt of the
investigator.

2. Secondary data

The secondary data are those which are already gathered, have been collected
originally for some other purpose. The investigator collected data from the company files and
various records.The investigations made use of number of books and papers on organizational
culture. The data should also be collected from internet by the investigator.In this project, the
secondary data sources are:

Company manuals, company website, company annual reports ,text books etc.

3.4 SAMPLING TECHNIQUES:

There are several methods available for selecting sampling. These are being grouped in to two
major heads such as probability sampling and non probability sampling. Probability sampling is
also known as Random sampling. In this method each item has its own chance for being

56

selected.Non probability sampling is that sampling procedure which does not afford any basis for
estimating the probability for each item to be included in the sample.
The sampling technique adopted for the study is Purposive sampling or
Judgement sampling. The population considered for the study is based on the balance sheets, P
and L account, and stock summary details of the company. The sample size is selected, based on
the data provided for the 5 years. The study is based on the data collected for 5 years which have
been considered for the study as the representative of the population

3.5 STATISTICAL TOOLS USED FOR DATA ANALYSIS

The data collected for the study was analyzed by using the following statistical tools. such as:
1.PERCENTAGE ANALYSIS

Percentage method refers to a special kind of ratio. Percentage is used in matching comparison
between two or more series of data. Percentage can also be used to compare relative terms,
distribution of two or more series of data.

Percentage (%) = (Number of respondents /Total Number of respondents) *100

2. CHI-SQUARE TEST

A chi-square test is any statistical hypothesis test in which the sampling distribution of the test
statistic is a chi-square distribution when the null hypothesis is true, or any in which this is
asymptotically true, meaning that the sampling distribution can be made to approximate a chisquare distribution as closely as desired by making the sample size large enough.

57

3. BAUMOLS MODEL
William j. baumol developed a model, which is usually used in inventory management but has its
application in determining the optimal cash balance also.Baumol found similarities between
inventory management and cash management.
4 .RATIO ANALYSIS:
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as the relationship
between two or more things. It involves comparison for a useful interpretation of the financial
statements and helps to summarize large quantities of financial data and to make qualitative
judgment about the firms financial performance.
6.CORRELATION:
The data involving two associated variables is known as bivariate data. In a bivariate
data the study of the degree of relationship (magnitude) between the variables is known as
Correlation analysis. In correlation analysis it is assumed that the two variables are linearly
correlated.
If there is correlation between the variables then the change in one variable is
accompanied by a proportionate change in the other variable. The change can occur in both
directions. If the increase in one variable causes increase in the other variable then the 2
variables are said to be positively correlated. If the increase in one variable results in decrease of
the other variable then the correlation is negative. The linear correlation between 2 variables can
be measured using Karl Pearsons Correlation Coefficient (usually denoted as r). The

58

equation of the Karl Pearsons correlation coefficient is calculated by considering the 2 variables
as X and Y.

r = n XY - X.Y
2

Where -1 r +1
2

nX - (X) . nY - (Y)

EVALUATION OF CORRELATION COEFFICIENT BETWEEN 2 VARIABLES

Table 3.1

Perfect Inverse Correlation

r = -1

No correlation

r=0

Perfect Positive Correlation

r = +1

Negative Correlation

r<0

Positive Correlation

r>0

59

CHAPTER IV
DATA ANALYSIS & INTERPRETATION

60

DATA ANALYSIS AND INTERPRETATION:

A cash flow statement is used in conjunction with the other financial statements. C a s h
f l o w i n f o r m a t i o n i s u s e f u l i n a s s e s s i n g t h e a b i l i t y o f t h e enterprises to
generate cash and cash-equivalents and enables users to develop models to assess and compare
the present value of the future cash flows of F.I.T. It also enhances the comparability of
the reporting of operating performance by different because it eliminates the
effects of using different accounting treatments for the same transactions and events.
Analysis of Cash Inflows and out flows:
Cash inflow for a period of 5 years
TABLE 4.1
year

Sales(rs in

Other

Change in

Total(rs in

lakhs)

income(rs in

stock(rs in

lakhs)

lakhs)

lakhs)

2009-10

805.76

2.15

(53.78)

754.13

2010-11

771.60

0.80

250.86

1023.26

2011-12

1265.33

0.74

18.41

1284.48

2012-13

1618.58

3.64

1622.22

20113-14

3227.28

49.43

3276.71

61

Cash outflow for the period of 5 yearsTABLE 4.2

Year

Manufac

Personal

Sales

Interest

Depreciat

Other

turing

expense

&direct

& bank

ion(in

expens

expense

s(in

expens

charges(i

lakhs)

es(in

s(in

lakhs)

es(in

n lakhs)

lakhs)

Total

lakhs)

lakhs)

2009-10

528.27

140.26

5.19

47.31

2.56

17.18

740.77

2010-11

720.39

215.32

6.61

50.23

2.49

21.96

1017

2011-12

1007.41

185.46

4.31

50.86

2.59

20.57

1271.2

2012-13

1151.58

199.11

3.65

76.33

28.33

1462

2013-14

2781.98

224.11

2.42

81.99

30.23

3123.73

62

Comparison of cash inflows and outflows of F.I.T

TABLE4.3

Particulars

2009-10 2010-11

2011-12

Cash inflow

754.13

1023.26

1284.48

Cash outflow

740.77

1017

Cash

13.36

2012-13

2013-14

1622.22

3276.71

1462

3123.73

13.28

160.22

152.98

47%

99.4%

1271.2

6.26

surplus(inflowoutflow)
Cash deficit
Profitability

100%

1199.25% 1145.05%

percentage

Figure 1 COMPARISON OF CASH INFLOW AND OUTFLOW

3500
3000
2500

2000
cash inflow
1500

cash outflow

1000
500
0
2009-10

2010-11

2011-12

2012-13

63

2013-14

ANALYSIS AND INTERPRETATION:

This graph shows comparison of both cash inflows and outflows of F.I.T. In the above graph
2009-10 considered as base year and assumed100% as profitability percentage in the year 200910.company earns a small cash surplus and there is no cash deficit. Compared to year 201213(119.92%) the profitability percentage is lower than in the year 2013-14(114.50%).
Table 4. 4COR-RELATION BETWEEN INFLOW AND OUTFLOW:
YEAR

X(INFLOW)

Y(OUTFLO

X2

Y2

XY

568712.05

548740.19

558636

W)
2009-

754.13

740.77

2010
2010-

.88
1023.26

1017

1047061.02

1034289

2011
2011-

5.42
1284.48

1271.2

1649888.87

1615949.44

2012
2012-

163283
0.97

1622.22

1462

2631597.72

2137444

2013
2013-

104065

237168
5.64

3276.71

3123.73

10736828.42

9757689.11

2014

102355
57.33

X=7960.8

Y=7614.7

X2=16634088.08

Y2==15094111.

XY=

74

158393
66.24

64

r = n XY - X.Y
nX2- (X)2 . nY2 - (Y)2

CORRELATION ( r ) = 0.998496
There is positive correlation between inflow &outflow of F.I.T.
RATIO ANALYSIS
Ratio analysis is one of the most powerful tool of financial analysis If it is a yardstick which
measures relationship between two variables.
According to Robert Antony ratio is one number expressed in terms of another.It is useful for
answering the performance of the

firm and very useful in cost control, decision making and

forecasting.
R a t i o a n a l y s i s i s a w i d e l y u s e d t o o l o f f i n a n c i a l analysis. It can be
used to compare the risk and return relationship of firms of different sizes. It is defined as the
systematic use of ratio to interpret the financial statements so that the strengths
and weaknesses of a firm as well as its historical performance and current financial condition
can be determined. The term ratio refers to the numerical or quantitative
relationship between two items.
Here using mainly four ratios:
1. Cash ratio
2. Cash to working capital ratio
65

3. Cash to sales ratio

4. Debtors turnover ratio
5. Liquidity ratio
6. Current ratio
7.Stock turnover ratio
8.Debt collection period
9.Debt equity ratio

1) CURRENT RATIO:

Current ratio is a financial ratio that measures whether or not a firm has enough resources to
pay its debts over the next 12 months. It compares a firm's current assets to its liabilities. Current
ratio of a firm measures its short term solvency.

Current ratio of 2:1 is considered as ideal ratio or standard ratio. A high ratio indicates sound
solvency position and a low ratio indicates inadequate working capital.

Current Ratio =

Current Assets

Current Liabilities

66

Table 4.5

year

Current

Current

Current ratio

assets

liability

2009-2010

1193.42

483.32

2.46

2010-2011

1391.66

613.99

2.26

2011-2012

2155.31

1454.03

1.48

2012-2013

2394.47

1310.11

2.01

2013-2014

2080.07

1123.64

1.85

Graph 3

current ratio
2.5
2
1.5
current ratio
1
0.5
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Analysis &interpretation:

The graph shows that comparison of current ratio of five years of forest industries
(Travancore)ltd.The figure shows that company has sound solvency position..In the year2014

67

companys solvency position is low (i.e 1.85:1) because the ideal current ratio is 2:1.in the year
2012-2013 the position of the company is good(current ratio is 2.01:1).

2) CASH RATIO:

Cash ratio is the ratio of cash and cash equivalents of a company to its current liabilities. It is an
extreme liquidity ratio since only cash and cash equivalents are compared with the current
liabilities. It measures the ability of a business to repay its current liabilities by only using its
cash and cash equivalents and nothing else.

Cash ratio =

cash +marketable securities

Current liability

Table 4.6

Year

Cash

Current liability

Cash ratio

2009-2010

237.61

483.32

.49

2010-2011

250.96

613.99

.40

2011-2012

201.69

1454.03

.13

2012-2013

405.35

1310.11

.30

2013-2014

764.17

1123.64

.68

68

Graph 4

Cash ratio
0.8

0.6
0.4

Cash ratio

0.2
0
2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

Analysis and interpretation:

A cash ratio of 1.00 and above (in the year 2010, 2011, 2013 &2014) means that the business
will be able to pay all its current liabilities in immediate short term. Therefore, creditors usually
prefer high cash ratio. But businesses usually do not plan to keep their cash and cash Equivalent
at level with their

current liabilities because they can use a portion of idle cash to generate

profits. This means that a normal value of cash ratio of F.I.T in the year 2012 is below 1.00.

3) CASH TO WORKING CAPITAL RATIO:

The working capital ratio, also called the current ratio, is a liquidity ratio that measures a firm's
ability to pay off its current liabilities with current assets. The working capital ratio is important
to creditors because it shows the liquidity of the company.
The reason this ratio is called the working capital ratio comes from the
working capital calculation. When current assets exceed current liabilities, the firm has enough
69

capital to run its day-to-day operations. In other words, it has enough capital to work. The
working capital ratio transforms the working capital calculation into a comparison between
current assets and current liabilities.
Cash
Cash to working capital ratio

Working capital

Table 4.7

Year

Cash

Working capital=

Cash to working
capital ratio

(Current assetcurrent liability)

2009-2010

237.61

710.1

.346

2010-2011

250.96

777.67

.327

2011-2012

201.69

701.29

.2875

2012-2013

405.35

1084.36

.3738

2013-2014

764.17

956.44

.7989

70

Graph 5

Cash to working capital ratio

80
60
Cash to working capital ratio

40
20
0
2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Analysis &Interpretation:

Since the working capital ratio measures current assets as a percentage of current liabilities, it
would only make sense that a higher ratio is more favorable. A WCR of 1 indicates the current
assets equal current liabilities. A ratio of 1 is usually considered the middle ground. It's not risky,
but it is also not very safe. This means that the firm would have to sell all of its current assets in
order to pay off its current liabilities.

A ratio less than 1 is considered risky by creditors and investors because it shows the
company isn't running efficiently and can't cover its current debt properly. A ratio less than 1 is
always a bad thing and is often referred to as negative working capital.On the other hand, a ratio
above 1 shows outsiders that the company can pay all of its current liabilities and still have
current assets left over or positive working capital.

71

4) CASH TO SALES RATIO :

It is one of the most important ratios of assessment of control of cash flows. This ratio provides a
deep insight into the amount of cash balance held by a concern. In the words of Professor John
Sengan, "The increase in sales is generally associated with larger bank balances. The growth of
which will increase decrease as the size of business increases. Table 4.8 illustrates the cash to
sales ratio of the selected steel Companies during the study period.

cash

Cash to sales ratio

Sales

Table 4.8

Year

cash

sales

Cash to sales ratio

2009-2010

237.61

805.76

.2948

2010-2011

250.96

771.60

.3252

2011-2012

201.69

1265.33

.1593

2012-2013

405.35

1618.58

.2504

2013-2014

764.17

3227.28

.2367

72

Figure 6

0.35
0.3
0.25
0.2
0.15
0.1
0.05
0

Cash to sales ratio

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014

Analysis & interpretation:

From the above graph, it reveals that the increase in sales is generally associated with larger bank
balances which means in the year 2010-2011 the sale of the firm high (.3252),% where as in the
year 2013- 2014 it was .2367 .The above diagram indicates that the growth of which will
increase decrease as the size of business increases. It can be observed that the ratio showed
increasing and decreasing trend.The lowest at .1593 percent in the year 2011-2012.

5.quick ratio:
Quick ratio also called acid test ratio establishes a relationship between quick or liquid assets
and current liabilities. The acid test ratio is a more severe and stringent test of a firm's ability to
pay its short-term obligations as it include only quick conversion assets.

QUICK RATIO = Quick Assets /Current Liabilities.

73

Table 4..9

Year

Quick Assets

Current Liabilities

2009-10

654.46

2010-11

593.03

2011-12

1366.1

2012-13

1444.75

2013-14

1291.65

Ratio
1.35

483.32

0.96

613.99

1.08

1262.15

1.21

1193.94

1.15

1123.64

Graph 7

quick ratio
1.5
1
Ratio

0.5
0
2009-10

2010-11

2011-12

2012-13

2013-14

Interpretation
The ideal Quick Ratio of 1:1 is considered to be satisfactory. The table indicates that the year
2009-10 was in a better financial position compared to other years. While the year 2010-11
indicates that current assets are low in comparison to the current liabilities.

74

6.Debt Equity Ratio

It expresses the relationship between the external equities and internal equities or the
relationship between borrowed funds and owners capital.

DEBT EQUITY RATIO=Total debt/ Net Worth

Table 4.10
Year

Total Debt

Net worth

Ratio

2009-10

609.04

138.19

4.41

2010-11

678.45

140.54

4.83

2011-12

786.3

149.73

5.25

2012-13

1054.03

198.1

5.32

2013-14

1015.8

253.01

4.01

Graph 8

debt equity ratio

6
4
Ratio

2
0
2009-10

2010-11

2011-12

2012-13

2013-14

Interpretation
The desirable norm in a debt equity ratio is 1:1 .A ratio higher than 1 signifies greater long term
debt financing than equity financing. Here , the claims of creditors are greater than those of
owners equity. A high level of debt position of the company states the inflexibility in the firm
operation due to increasing inference and pressure from the creditors. The company was high
debt equity ratio in the year 2012-13 and decreased to 4.01in the year 2013-14.

75

4.7. STOCK TURNOVER RATIO

Inventory means stock of raw materials, working in progress and finished goods. This ratio is
used to measure whether the investment in stock in trade is effectively utilized or not. Stock
Turnover Ratio indicates the number of times the stock has been turned over in business
during a particular period.
Stock turnover ratio= Net sales/ Average inventory

Average Inventory = opening stock + closing stock

2

Table 4..11
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Average
inventory

Net Sales
805.75
771.6
1265.33
1618.58
3227.28

Ratio
480.27
577.4
710.15
755.22
761.33

1.68
1.34
1.78
2.14
4.24

Graph 9

stock turnover ratio

6
4
Ratio

2
0
2009-10

2010-11

2011-12

2012-13

2013-14

Interpretation
Here , Net Sales and average inventory of the company is showing an increasing trend. In the
year 2013-14, both average inventory and net sales are maximum.
76

4.8 DEBTORS TURNOVER RATIO

Debtor's Turnover Ratio is also termed as Receivable Turnover Ratio or Debtor's Velocity.
Debtor's Velocity indicates the number of times the receivables are turned over in business
during a particular period.
DEBTORS TURNOVER RATIO= Net Credit Sales / Average Receivables
Average Accounts Receivable = (opening receivables + closing receivables )/2
Table 4.12.
Year
2009-10
2010-11
2011-12
2012-13
2013-14

Net sales
805.75
771.6
1265.33
1618.58
3227.28

Average Debtors
Ratio
776.58
621.31
877.47
1101.91
783.44

1.04
1.24
1.44
1.47
4.12

Graph 10

stock turnover ratio

5
4
3
Ratio

2
1
0
2009-10

2010-11

2011-12

2012-13

2013-14

Interpretation
In FIT , there is an increasing trend in debtors turnover ratio. It has reached the highest in the
year 2013-14 which shows the efficiency of the firm in credit management. It also implies the
companys credit sales are quickly converted into cash.

77

4.9 DEBT COLLECTION PERIOD

This ratio indicates the efficiency of the debt collection period and the extent to which the debt
have been converted into cash.

Debt Collection Period = Months or days in a year/ Debtors turnover ratio

Table 4..13

Year
2009-10
2010-11
2011-12
2012-13
2013-14

No. of days
365
365
365
365
365

Debtors turnover
Debt collection
ratio
period
1.04
350.96
1.24
294.35
1.44
253.47
1.47
248.30
4.12
88.59

Graph 11

Debt collection period

400
300
200
Debt collection period

100
0
2009-10

2010-11

2011-12

2012-13

2013-14

Interpretation
The debt collection period indicates that there is a downward trend . The year 2013-14 has the
least debt collection period indicating effective collection of debt.
78

WILLIAM J. BAUMOLS MODEL

William j. baumol developed a model, which is usually used in inventory management but has its
application in determining the optimal cash balance also.Baumol found similarities between
inventory management and cash management.

Here using the following formula to check the optimal cash balance.

C=

2AF

where

C = Optimum balance.
A = Annual (or monthly) cash disbursemen
F = Fixed cost per transaction
O = Opportunity cost of holding cash.

79

Table 4.9
PARTICULARS 2009-2010

2010-2011

2011-2012

2012-2013

2013-2014

Annual cash

693.19

965.97

1217.75

1466.41

3128.69

49.41

49.41

49.41

49.41

49.41

5%

5%

5%

5%

5%

1170.47

1381.71

1551.37

1702.41

2486.67

disbursement
Fixed cost per
transaction
Opportunity cost
of holding cash
Optimum
balance

Figure 12

optimum balance

3000

2013-2014,
2486.67

2500
2000
1500

2009-2010,
1170.47

2010-2011,
1381.71

2011-2012,
1551.37

2012-2013,
1702.41

1000
500
0
2009-2010

2010-2011

2011-2012

80

2012-2013

2013-2014

The above diagram represents the optimum cash balance of five years. In the graph indicates
that the optimum cash balance of F.I.T is increasing. At present F.I.T have 30% increase in the
cash balance. Therefore the total cost of F.I.T is minimum . The lowest balance of cash is in
the year 2009-2010 (i.e. 14%). And in the year 2011-2012, 2012-2013 it was 19% and 20%
respectively.

HYPOTHESIS TESTING

H0: The existing cash management system of F.I.T is not effective in the organization.

Chi-square test:

A chi-square test is any statistical hypothesis test in which the sampling distribution
of the test statistic is a chi-square distribution when the null hypothesis is true, or any in which
this is asymptotically true, meaning that the sampling distribution can be made to approximate a
chi-square distribution as closely as desired by making the sample size large enough.

Chi-square test (non- parametric):

Non-parametric chi-square test is applied to test the goodness of fit between the observed
frequencies &expected frequencies.
x2
n-1

Where E Is the expected frequency.

O is the observed frequency.
81

Talbe 10

Year

Observed

Expected

frequency

frequency

(O-E)2

(O-E)2
E

2009-2010

1170.47

6303.294

26.34

4.17

2010-2011

1381.71

6303.294

24.22

3.84

2011-2012

1551.37

6303.294

22.58

3.58

2012-2013

1702.41

6303.294

21.16

3.35

2013-2014

2486.67

6303.294

14.56

2.3

E
=17.24

Calculated value =17.24

Table value( x25-1) =9.488

Analysis and interpretation:

Calculated value is greater than table value (17.24>9.488).so reject null hypothesis that the
existing cash management system of F.I.T.Therefore the existing cash management of Forest
industries is effective in the organization.

82

Chapter v
SUMMARY AND CONCLUSION

83

5.1Summary of the study:

The study on the topic, effectiveness of cash management of forest industries (Travancore) ltd
represents the necessity of maintaining the cash of the company. The study is done with the set
objectives and hypothesis under certain assumptions considering the populations and sample
sizes even though there is limitations of the time as well as difficulties in the collection of data.
With the data obtained from the annual reports, company websites and stock summary details
provided by the company forms the most important part of the study as it results in to the
formation of analysis and interpretations including the appropriate charts, tables and
calculations. The analysis and interpretations for the study is done in objective-wise and also on
the basis of hypothesis. The objective- wise analysis and interpretations is made using the
techniques such as percentage analysis and ratio analysis,chi-square test,Baumols model.
The testing of hypothesis is the most significant part of the project
and it is being done only for the cash control technique Baumols model using chi-square as the
statistical tool. Following the analysis and interpretations results in to the conclusions which is
purely depended up on the calculations made in the analysis stage and thereby leads to the
completion of the entire study.

84

5.2 FINDINGS

The cash management of F.I.T IS efficient.

The year 2009-10 is having highest current ratio and lowest in the year 2011-12. Initially
it was high and a decreasing trend is seen till 2011-12 ,there was a small increase in the
year 2012-13 and again reduced to 1.85 in the year 2013-14.

A cash ratio of 1.00 and above (in the year 2010, 2011, 2013 &2014) means that the
business will be able to pay all its current liabilities in immediate short term.A normal
value of cash ratio of F.I.T in the year 2012 is below 1.00

Quick ratio shows that the year 2009-10 was in a better financial position compared to
other years. While the year 2010-11 indicates that current assets are low in comparison to
the current liabilities.

In F.I.T there is adownward debt collection period.the year 2013-14 has the least debt
collection period.

In F.I.T there is an increasing trend in debtors turnover ratioIt has reached the highest in
the year 2013-2014 which shows the efficiency of the firm in credit management.It also
implies company s credit sales are quickly converted into cash.

Cash to sales ratio indicates 23.67% of sales has been maintained as cash with the
business.

There is a high rate of positive correalation between cash inflows and cash outflows(.99)

The company was high debt equity ratio in the year 2012-13 and decreased to 4.01in the
year 2013-14.

85

5.3 SUGGESSIONS

F.I.T S should keep its cash&cash equivalents below the requirements of one months
normal expenditure.

The company should try to prepare a proper ageing schedule of debtors.This will help
them to reduce the bad debts and speed up collection.

Company should prepare and use historical cashflow statement to gain understanding
about where all the money went.

At times like low sales and poor cash management,business managers or owners need to
sit down and undertake cash management analysis so that they can address
shortfalls,increase revenues,and cut-spending before its too late.

86

5.4 SCOPE FOR THE STUDY

The project study is limited for a period from 2010 2014. The study is done only based on the
annual reports, company websites and stock summary details provided by the company. Any
fluctuations before the study period is not considered in the study, considering and comparing
the period of study before will help to attain more accurate results. The original image of the
company can only be seen when the entire life of the business is considered. The study is limited
to Baumols cash management techniques. The researcher can make use of the other techniques
of cash management other than the techniques used in the study. This will helps the researcher
to compare how the results obtained are different from other techniques as well as helps to know
the merits as well as demerits of the various techniques.
The study has scope for further research. The study conducted is
limited to the area of the Forest Industries (Travancore)ltd.there is a scope for studying
different furniture companys performance with this techniques.

87

5.5

CONCLUSION

Good cash management means:

Knowing when, where, and how your cash needs will occur,

Knowing what the best sources are for meeting additional cash needs; and,

Being prepared to meet these needs when they occur, by keeping good relationships with
bankers and other creditors.

The main purpose of keeping cash is to meet day-to-day requirements along with sufficient
liquidity and adequate profitability. A financial analyst has come to the conclusion that "business
enterprises should keep its cash and near-cash reserves below the requirements of one month's
normal expenditure. If cash and near cash reserves happen to be more than this limit, it should be
taken for granted that excessive cash is being carried by the concern."24 In fact, a concern
should go foroptimizing its cash holdings without impairing the overall liquidity requirements.
This can be possibly executed only if a firm exercises tight control over cash flows. A concern in
this respect may develop a trend or pattern from its past records and experience or a
comparative study of its own cash balances with that of other concerns of the same industry may
also be conducted for framing a line of control. This may help the concern in determining the
extent of cash balances and in avoiding risk of holding excess cash balance in the business. The
following ratios are considered helpful in this respect: -current ratio, cash ratio, cash to sales,
cash to other income etc..

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